Scasboro Beach is a beautiful beach in Bondavia. The surrounding residential area is very attractive because of the beach and the lovely views out to the ocean. After a great deal of negotiation, the Coastal Development Company obtained a permit from the local shire council to erect a 12-storey
five-star hotel, which would encroach onto the lovely beach and sand dune area. Prior to this approval, the highest building permitted at Scasboro Beach was three storeys. Construction began immediately. At this time a legal challenge to the hotel was lodged by a local ratepayers' association and environmental groups. They wanted the permit declared void because the planned structure would obstruct the views of existing property owners and cause damage to sand dunes in the area.
After the Coastal Development Company had invested $500 000 in the Scasboro Hotel project, a court held with the plaintiffs and ordered demolition of the site, as well as total restoration of the area. This would cost approximately $200 000. The company lost an appeal to a higher court.
Required:-
a. Discuss how you might measure the economic value (using your understanding of what economic value means) of the project before the decision of:
i the lower court
ii the higher court.
b. What problems do you envisage in making such measurements?
c. What losses were sustained and who sustained the losses in this case?